Gold rose on Tuesday as Japanese speculators returned to the market after a holiday, but dealers said the metal needed to crack resistance above $580 an ounce to sustain gains.
Spot gold rose as high as $579.60 an ounce and slipped to $578.40/579.40 an ounce, still higher than $576.00/577.10 an ounce late in New York. "Gold needs to break firm resistance around the $586 level to be able to challenge the key psychological $600 level; whilst a break below $573 could see the price retreat back towards $560," Invested Australia said in a daily report.
"We do anticipate considerable support around $550 should the downside scenario occur," it said. Gold hit an intrude high of $580.75 on Monday on safe-haven buying after North Korea said it had carried out an underground nuclear test. Firmer oil also aided gold before profit taking erased some of the gains.
World powers condemned North Korea after it said it had conducted its first underground nuclear test, and Washington sought harsh UN sanctions that could further isolate the communist state.
US President George W. Bush called it a "provocative act" that threatened international peace and security and said it required an immediate response from the UN Security Council.
The benchmark gold futures contract on the Tokyo Commodity Exchange, currently August 2007, rose 53 yen per gram to 2,243 yen ($18.83). Dealers said bullion would closely watch developments on the Korean peninsula and the energy market for direction.
Crude oil hovered below $60 a barrel, with dealers pondering whether Opec will follow through on plans to cut 1 million barrels per day of output to push up prices. Kuwait's oil minister said on Monday that Opec members were still holding consultations over output cuts to shore up oil prices.
Yukuji Sonoda, precious metals analyst at Daiichi Commodities in Tokyo, said the US government would do its best to prevent oil prices from rising above $60 to keep inflation in check ahead of November's mid-term elections.
Voters will decide on November 7 which party controls the US House of Representatives, where President George W. Bush's Republicans now hold a 15-seat advantage over Democrats.
"They are very nervous about the oil price and they will not increase interest rates in the coming FOMC," said Sonoda, referring to the October 24 meeting of the Federal Open Market Committee. A steady US rate may weaken the dollar and boost gold's appeal as an alternative investment, said Sonoda, adding that bullion would eventually regain $600 an ounce.
Gold has lost around 20 percent in value since rallying to its highest in 26 years of $730 an ounce in mid-May. The FOMC raised interest rates at 17 consecutive meetings over two years before leaving the benchmark federal funds rate at 5.25 percent in August and September. Financial markets anticipate the fed funds rate will hold steady at least through year-end. The euro was at $1.2595, within sight of the 2-1/2-month low of $1.2571 hit on Friday.
In other precious metals, silver rose to $11.33/11.40 an ounce from $11.28/11.35 late in New York. Platinum eased to $1,089/1,094 an ounce from $1,082/1,087 in New York. Palladium rose to $305/310 an ounce from $300/304 an ounce.
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